CSL Limited
(ASX: CSL) shares could be an interesting idea for blue chip investors.
CSL is one of the biggest businesses in Australia. It develops innovative biotherapies and influenza vaccines that save lives, and help people with life-threatening medical conditions.
Why is CSL a good blue chip option?
There’s no set definition of a blue chip, but it’s meant to describe a large business. However, I think any business is only worth investing in if it has a good growth path for the foreseeable future. Simply being large isn’t enough by itself.
CSL is a really good blue chip in my opinion. It has a history of growth over the last decade. Healthcare is a really important sector. Thankfully, society places a high value of remaining healthy and alive. CSL’s products are important in the healthcare space.
Its blood plasma products have high levels of annual demand and the vaccines also contribute to earnings. CSL will play its part in delivering the COVID-19 vaccine to the Australian population.
Research and development
One of the most attractive things about CSL is its commitment to investing in R&D. It could choose to stop investing and make much more profit in the short term. But it’s the R&D that leads to creating new or better products which unlocks more earnings streams.
Currently, CSL spends around 10% of its revenue on R&D each year, though this may be a bit higher this year because of COVID-19 effects (including CSL’s involvement).
What does FY21 look like?
CSL is now expecting profit to grow in the range of 3% to 8% to US$2.17 billion to $2.265 billion. Profit growth was previously expected to be in a range of 0% to 8%. So whilst the top end of the profit guidance is still expected to be 8% growth, the company’s mid-point of guidance has increased.
The profit growth is going to be helped by revenue growth in the range of 6% to 10%.
CSL is expecting strong demand for its plasma and recombinant therapies over FY21. Seqirus is expected to continue to benefit from its differentiated products and strong demand for flu vaccines, driven by the government want to protect people from both COVID-19 and the flu. Sales of albumin are expected to normalise after the successful transition to the new business model in China.
Using CommSec projected profit numbers, CSL shares are priced at 34 times the estimated earnings for the 2023 financial year. That’s fairly pricey for a business with a market capitalisation well north of $100 billion. It’s not a clear buy for me, but I’d rather buy it than many other ASX 20 blue chips.
Almost every good ASX healthcare share is priced highly right now. I’d rather buy ASX growth shares that are a lot smaller such as Pushpay Holdings Ltd (ASX: PPH).
